Civil war in Yemen does impact West Texas

By Rye Druzin | rdruzin@mrt.com | @druzin_journo

Published 12:15 pm, Monday, March 30, 2015

Photo: Hasan Jamali\Associated Press

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In this Oct. 14 file photo, an oil pump works at sunset in the desert oil fields of Sakhir, Bahrain. The price of oil suffered its biggest drop in nearly two years after the International Energy Agency reduced its forecast for demand for this year and next. less

In this Oct. 14 file photo, an oil pump works at sunset in the desert oil fields of Sakhir, Bahrain. The price of oil suffered its biggest drop in nearly two years after the International Energy Agency reduced ... more

Photo: Hasan Jamali\Associated Press

Civil war in Yemen does impact West Texas

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Air strikes by Saudi Arabia and increasing involvement against a rebellion by ethnic Houthis in Yemen sparked a brief rally in oil prices last week. The bombings sent prices for West Texas Intermediate above the $50 mark and offered a glimmer of hope to those in America’s oil industry. But the price of oil adjusted the next day and settled in the high $40s, despite the increased intensity of the Saudis and surrounding Gulf States’ involvement in the Yemeni conflict.

So how do events in an oil-poor country impact the global oil industry, including prices in Midland? The chronic instability is a major threat to Saudi Arabia -- Yemen’s large and oil-rich neighbor to the north -- which pumps in excess of 11 million barrels of oil a day into the global energy market. Al-Qaida operates one of its most effective branches, al-Qaida in the Arabian Peninsula, out of Yemen, and the group allegedly has tried to assassinate Saudi officials in the past, according to the Huffington Post. The recent unrest has many people worried that AQAP’s influence may increase in the Arabian Peninsula.

On the southern tip of Yemen is the strategic Bab-el-Mandeb strait, which is about 20 miles wide and separates Yemen from the African country of Djibouti. The strait controls access to the Red Sea and the Suez Canal in Egypt and the transportation of an estimated 3.8 million barrels of oil a day, according to 2013 estimates from the U.S. Energy Information Administration.

There is a concern that the civil war in Yemen threatens this oil -- which accounts for roughly 4 percent of the world’s supply. The involvement of Saudi Arabia heightened that tension and spread the risk of a widening of the conflict to the oil-rich kingdoms that surround Yemen.

This uptick reminds us how interconnected the energy industry is and how energy prices are dictated by events, whether military conflicts in the Middle East, political issues in the United States, or economic ups and downs in Europe and China.